Recent decisions have cast doubt on the enforcement of arbitration clauses in the context of the interstate transportation of goods, but will those limitations extend to the transportation of passengers? And what if the movement does not cross state lines?

In a Sept. 11, 2019, opinion, the Third Circuit found that the residual clause of the Federal Arbitration Act’s (FAA) Section 1 “may extend” to a class of Uber drivers “who transport passengers, so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it.” Singh v. Uber Technologies, Inc., Case No. 17-1397 (3d Cir. Sept. 11, 2019).

Judge Joseph A. Greenaway, Jr., wrote for a three-judge panel of the court in vacating the District Court’s order, which had sent the dispute to arbitration. And because no filings could resolve the interstate-commerce issue, the case was remanded for further proceedings – including discovery before additional briefing.

We have previously written about the impact of New Prime v. Oliveira, No. 17-340, 139 S. Ct. 532 (Jan. 15, 2019), and the uncertainty it created. See our Jan. 17, 2019, March 12, 2019, and April 29, 2019, blog posts on the issues raised by New Prime and its progeny in the transportation industry.

The Proceedings Below

Jaswinder Singh initially filed the action in New Jersey state court alleging that Uber Technologies Inc. (Uber) misclassified its drivers as independent contractors rather than employees, causing them to be denied overtime and proper reimbursement for business expenses. Uber removed the action to federal court and sought to compel arbitration of the dispute.

While the District Court ultimately granted Uber’s motion, it did not reach the “engaged-in-interstate commerce inquiry.” The court instead went down a path that others have considered – that the residual clause of Section 1 only applies to transportation workers who transport goods, not passengers. The Third Circuit panel disagreed.

The Appeal

Section 1 excludes from the FAA’s coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. §1. But the dispute specifically centered on what is known as the “residual clause” – the “any other class of workers” portion.

Premised on this vintage precedent, the panel held that all transportation workers in interstate commerce could be excluded from the FAA. But to make a final determination, discovery was necessary. Singh’s affidavit in the District Court only stated that he often transported passengers on the highway from New York to New Jersey. So, to make a coverage decision, the District Court may need to consider the parties’ agreement, information regarding the industry, information about the work being performed, as well as other laws, dictionaries and materials discussing the parties and their work. Slip Op. 32-33.

The panel also instructed the District Court that if the FAA were applicable, any other questions must be reserved for the arbitrator. These would include arguments that the arbitration agreement is unenforceable because (1) it did not include a valid waiver of the right to a jury trial, (2) it violated the National Labor Relations Act, the Norris-LaGuardia Act, or the New Jersey Wage and Hour Law, and (3) it was unconscionable.

Judge David J. Porter concurred in part with the panel’s decision but wrote separately to explain why the transportation of goods versus passengers distinction that Uber advocated does not fit with the text of Section 1 of the FAA. And Judge Porter disagreed with his panel members that the parties should immediately begin discovery on remand. Instead, he believed,

“if there exists a valid alternative basis on which the District Court could compel arbitration, it may be more efficient to decide that question first, before allowing discovery on the §1 issue.”

In reaching that conclusion, he cited four decisions, including Palcko v. Airborne Exp., Inc., 372 F.3d 588, 596 (3d Cir. 2004), which enforced an FAA-exempt arbitration agreement under state law.

Finally, even though the Singh opinion analyzed many arguments and significant precedent, it did little to clarify the scope of the Section 1 exemption. Indeed, the decision, together with pending California legislation on who is an employee versus who is a contractor, only adds more uncertainly, particularly for those in the gig economy. And the FAA scope question is not likely to go away anytime soon, because it is also being raised in cases now before the Seventh and Ninth Circuits. See Wallace v. GrubHub Holdings, Inc., Case Nos. 19-1564 & 19-2156 (7th Cir. Docketed Mar. 28, 2019) (whether drivers who deliver takeout orders from restaurants to consumers are not transportation workers “engaged in the movement of goods in interstate commerce” and do not qualify under the Section 1 FAA exemption); Rittmann v. Amazon.com, Inc., No. 19-35381 (9th Cir. Docketed May 3, 2019) (whether local delivery drivers in the Los Angeles area are “engaged in * * * interstate commerce” within the meaning of Section 1 and not subject to the FAA).

BOTTOM LINE:

The Third Circuit panel found that the FAA Section 1 residual clause “may extend to a class of transportation workers who transport passengers” and remanded the case for additional discovery to address the “engaged in interstate commerce inquiry.”

California’s Supreme Court has cut off an area of significant potential exposure for California employers by ruling that employees cannot recover unpaid wages on behalf of themselves and other aggrieved employees through California’s Private Attorneys General Act (PAGA).

Serving as a quasi-class action, California’s PAGA allows employees to recover civil penalties for California Labor Code violations on behalf of themselves and other aggrieved employees. Of the employee’s recovery, 75% goes to the state and the other 25% goes to the aggrieved employees. Prior to PAGA, these civil penalties could be recovered only by California’s Labor Commissioner.

One such Labor Code section affected by PAGA is Labor Code § 558, which provides for the recovery of civil penalties in the amount of $50 for an initial violation and $100 for a subsequent violation per employee in the event of overtime violations. Section 558 further provides that these penalties may be recovered “in addition to an amount sufficient to recover underpaid wages.” As PAGA allows employees to recover penalties on behalf of themselves and other employees, the amount of underpaid wages can add up to significant potential exposure for an employer.

Whether employees can recover these unpaid wages in addition to the fixed penalties made its way to the California Supreme Court in ZB, N.A. v. Superior Court. As background, the California Supreme Court has previously held that an employee’s PAGA claim cannot be compelled to arbitration because the state has an interest in the recovery (75% of the amount recovered) and only the employee agreed to arbitration—not the state. In this case, the employer moved to compel arbitration of just the portion of the PAGA claim seeking unpaid wages. Therefore, under the employer’s motion, the aspect of the employee’s claim seeking the fixed statutory amount would remain in court while the aspect of the employee’s claim seeking unpaid wages would be compelled to arbitration. The employer reasoned that such wages were payable to the employees and not the state, therefore, the motion would not run afoul of the prior California Supreme Court ruling. The Court of Appeal disagreed, and the California Supreme Court granted review.

Ultimately, the California Supreme Court never ruled on the permissibility of this arbitration approach because it concluded that the employee could not recover those unpaid wages in the first instance. The court reasoned that unpaid wages constitute compensatory relief rather than civil penalties, and because PAGA only authorizes the recovery of civil penalties, the employee cannot recover the unpaid wages. And as the employee cannot recover the unpaid wages, there is no claim to arbitrate.

]]>https://www.employmentclassactionreport.com/paga/ca-supreme-court-rules-that-employees-cannot-recover-unpaid-wages-through-paga/feed/0Ninth Circuit Reverses Itself And Finds That At Least Some ERISA Claims Can Be Compelled To Arbitrationhttps://www.employmentclassactionreport.com/erisa/ninth-circuit-reverses-itself-and-finds-that-at-least-some-erisa-claims-can-be-compelled-to-arbitration/
https://www.employmentclassactionreport.com/erisa/ninth-circuit-reverses-itself-and-finds-that-at-least-some-erisa-claims-can-be-compelled-to-arbitration/#respondFri, 23 Aug 2019 13:22:38 +0000https://www.employmentclassactionreport.com/?p=5723Continue Reading]]>But Do You Really Want To In All Cases?

The Employee Retirement Income Security Act of 1974 (“ERISA”) was the largest statute ever passed by Congress at the time it was enacted and has only grown further since then. In the 44 years that have followed its effective date, so too have grown the number of opinions, and changes in direction, among the courts.

There is little question that ERISA functions unlike many other statutes. It has one of the broadest preemption clauses of any federal statute. 29 U. S. C. § 1144(a). It has its own unique enforcement provisions in section 502 (29 U.S.C. § 1132) that are deceptively short but have spawned four decades of disputes over what may or may not be a topic of litigation and the available damages. As the Supreme Court has long recognized, the statute’s enforcement provisions are a unique marriage of the common law of trusts and Section 301 of the Labor Management Relations Act, 29 U.S.C. § 185. See, e.g., Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Particularly as to benefit claims, ERISA not only encourages but requires claims procedures that include mechanism for review. 29 U.S.C. § 1133; 29 C.F.R. § 2560.503-1.

So, given all that, can the employer or plan require arbitration of ERISA claims? Which ones? When? And might they really want to?

Only seven years after ERISA’s passage, the Ninth Circuit addressed at least some of these questions in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984). The Amaro case involved an interesting fact pattern. There, a unionized employer laid off a number of employees in the years following ERISA’s passage. The union grieved the terminations under the collective bargaining agreement (CBA) which, as most do, culminated in binding arbitration. The arbitrator concluded that the layoffs were precipitated by market conditions and denied the grievance under the CBA. Unhappy with this result, the employees filed suit under section 510 of ERISA (29 U.S.C. § 1140 – ERISA’s anti-retaliation provision), contending that the discharges (and those following the period covered by the arbitration decision) were motivated by a desire to prevent them from accumulating years of service under the plan.

The Ninth Circuit addressed a number of arguments raised by the employer, including that of res judicata, which it rejected. Pertinent to this discussion, it held that the employees were not required to exhaust their administrative procedures (including arbitration) under the CBA before filing their statutory ERISA claims but could proceed directly to court. Its decision rested in large part on the premise that arbitrators “lack the competence of courts to interpret and apply statutes as Congress intended.” Amaro was widely seen as rejecting binding arbitration in the ERISA context, at least in the Ninth Circuit, and at least as to certain kinds of ERISA claims.

Let’s flash forward 30 or so years. In the decades since the Amaro decision, the Supreme Court has issued numerous opinions reiterating the importance of arbitration and largely rejecting various arguments that courts had used to invalidate arbitration agreements. These cases ultimately rejected the notion that arbitrators are incapable of interpreting complex federal statutes. This line of Supreme Court cases culminated in last year’s decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which eliminated one of the last remaining arguments plaintiffs and courts had used to avoid arbitration provisions. We blogged that decision here. Epic Systems and its predecessors cast considerable doubt on whether Amaro was still good law.

Two months after the Supreme Court’s Epic Systems ruling, the Ninth Circuit issued another arbitration decision in the ERISA context, Munro v. University of Southern California, 896 F.3d 1088 (9th Cir. 2018). In that case, the court found, under the factual circumstances of the case, that claims under section 502(a)(2) of ERISA brought on behalf of the plan itself could not be compelled to arbitration. That decision, however, left a host of questions open, such as whether a plan could be drafted in such a way as to require arbitration, or if the plan’s own fiduciaries or the Department of Labor could ever be forced to present their claims in arbitration. We blogged that decision here. Significantly, the court commented in a footnote that the proposition that the intervening Supreme Court cases overruled Amaro had “considerable force.” It found no reason to reach the issue, however, as it concluded that the arbitration agreement at issue did not encompass the plaintiffs’ claims.

Now, in Dorman v. Charles Schwab Corp., Case No. 18-15281 (9th Cir., Aug. 20, 2019), a 3-judge panel of the Ninth Circuit has concluded that Amaro is no longer good law. The Dorman case involved a claim under ERISA section 502 for claimed breaches of fiduciary duties based on the employer’s alleged inclusion of investment funds from its affiliates in its 401k plan. The panel issued two decisions. In the first decision, designated for publication, it simply held that in light of the changes in Supreme Court authority, Amaro was overruled. Then, in a separate memorandum order designated not for publication, the court made a series of additional pronouncements. These pronouncements would also be significant but for limited precedential effect given to unpublished opinions. In that memorandum, the court concluded that, unlike Munro, the arbitration agreement did cover the disputed claims. Further, it found that while the claim purported to rely on conduct affecting the plan as a whole, it was “inherently individualized” in the context of a defined contribution plan and, pursuant to the terms of the plan, would need to be arbitrated on an individual basis.

So what does all this mean? It’s not clear whether the panel decision in Dorman will stand, although it is almost certainly correct in light of recent precedent. The Supreme Court has denied certiorari in the Munro case, and it is not clear what steps the plaintiffs will now take in Dorman. Barring another change in the law, together these cases seem to stand for the proposition that many types of ERISA cases may be subject to arbitration if the plan documents are drafted properly, but much larger questions remain.

Chief among those questions is whether the employer or plan would really want claims of this type (or any particular type) resolved by an arbitrator. Even in the union context, arbitration provisions commonly exclude routine benefit claims. At the other extreme, the employer and plan can legitimately question whether they want an arbitrator to resolve complex statutory and investment issues. And it would be difficult to argue that regulatory entities like the Department of Labor would be bound by an arbitration agreement. Moreover, arbitration may prove to be an unfavorable forum in the not uncommon event that the claims involve potential cross claims, counter claims or third party practice involving consultants and vendors to the plan. And an adverse arbitral decision may have a ripple effect should a later litigant, the DOL or the IRS try to use it as proof that an employer was aware of some defect in plan administration or, worse, tries to give it issue preclusive effect. Many of these can be addressed in varying degrees in plan drafting, but some cannot, and all involve a series of practical, legal and economic considerations.

The bottom line: The Ninth Circuit, at least for now, has opened the door to mandatory arbitration of some ERISA claims, but that only begs the question of whether arbitration on balance will be a positive or negative for the employer and the plan.

]]>https://www.employmentclassactionreport.com/erisa/ninth-circuit-reverses-itself-and-finds-that-at-least-some-erisa-claims-can-be-compelled-to-arbitration/feed/0Tennessee District Court Refuses Conditional Certification of Class of Assistant Managershttps://www.employmentclassactionreport.com/flsa/tennessee-district-court-refuses-certification-of-class-of-assistant-managers/
https://www.employmentclassactionreport.com/flsa/tennessee-district-court-refuses-certification-of-class-of-assistant-managers/#respondWed, 21 Aug 2019 19:03:07 +0000https://www.employmentclassactionreport.com/?p=5713Continue Reading]]>In collective actions under the FLSA, courts typically apply a lower standard to the first “conditional certification” stage. In some cases, that might be warranted, but in many instances courts will undertake an unduly lenient review and conditionally certify cases that have no business proceeding as a class and have no realistic prospect of surviving as a class at the higher second stage. These rulings likely run afoul of the admonition of the Federal Rules of Civil Procedure that district court proceedings should be employed “to secure the just, speedy, and inexpensive determination of every action . . . .” F.R. Civ. P 1. Instead, such rulings rely upon the time, expense and burden of post-notice litigation to pressure the defendant into settlement. Indeed, one line of cases notes that a court ruling on a motion for conditional certification should be mindful of its obligation “to refrain from ‘stirring up unwarranted litigation.’” Rowe v. Hospital Housekeeping Systems, LLC., Case No. 17-9376 (E.D. La. Feb. 6, 2018) (and cases cited therein).

Increasingly, when courts do undertake to examine the merits, even at the initial stage, it becomes obvious that the matter will never survive as a collective action. This is particularly true in cases in which the employer’s policies are facially lawful but the plaintiff tries to allege some class-wide policy to “violate the policy.”

A recent case from the Middle District of Tennessee illustrates this point. In Ratcliffe v. Food Lion, LLC, Case No. 3:18-cv-01177 (M.D. Tenn. Aug. 16, 2019), the plaintiffs brought a fairly typical FLSA collective action – one contending that assistant managers at a grocery chain did not exercise the appropriate amount of management responsibility or independent judgment and were therefore misclassified as exempt. When the plaintiff moved for conditional certification of a proposed class of assistant managers company-wide, the court noted and applied the traditional lower standard, but also noted that the plaintiff is still required to produce factual support “for the existence of a class-wide policy or practice that violates the FLSA.”

In this instance, many of the basic, and to some degree overlapping, facts were undisputed and were common to the claimed collective class members. They were all assistant managers working for the same employer under the same job description, and all were classified as exempt. Matters in common, yes, but none illegal. Similarly, the company used uniform policies across all of its stores. Again, nothing illegal about that. And that was the problem. The company’s job descriptions described a job that would be exempt under the FLSA. To prevail, the plaintiffs had to prove that despite the written policies there was some unwritten policy to violate them on a class-wide basis.

This is, incidentally, a fatal flaw in many FLSA cases that purport to be brought on a class-wide basis.

Both sides made evidentiary submissions mostly recounting the experiences of individual assistant managers at individual stores. The court refused to make any credibility determinations and largely ignored the employer’s evidence, but still found that proof of a nationwide, uniform “policy to violate the policy” (our words, not the court’s) was lacking. Instead, the court found, the proposed class members’ experience depended on what happened at each individual store and under the different managers at each location. Moreover, different assistant managers had different specific sets of duties. Under those circumstances, the court found that treating the case as a collective action would be both procedurally unwieldy and unfair to the defendant. It therefore denied certification.

The bottom line: Absent genuine evidence of a “policy to violate the policy” on a company-wide basis, courts should decline even conditional certification when the employer’s policies are facially lawful.

]]>https://www.employmentclassactionreport.com/flsa/tennessee-district-court-refuses-certification-of-class-of-assistant-managers/feed/0Ohio Supreme Court Addresses Waiver of the Right to Arbitrate in the Putative Class Action Contexthttps://www.employmentclassactionreport.com/arbitration/ohio-supreme-court-addresses-waiver-of-the-right-to-arbitrate-in-the-putative-class-action-context/
https://www.employmentclassactionreport.com/arbitration/ohio-supreme-court-addresses-waiver-of-the-right-to-arbitrate-in-the-putative-class-action-context/#respondMon, 19 Aug 2019 20:43:16 +0000https://www.employmentclassactionreport.com/?p=5703Continue Reading]]>In Gembarski v. PartsSource, Inc. (Slip Opinion No. 2019-Ohio-3231, decided Aug. 14, 2019), the Supreme Court of Ohio clarified the standards for waiver of the right to arbitrate in the class action context where only unnamed putative class members but not the single named plaintiff had agreed to arbitration. The court ultimately concluded that the employer did not waive the right to raise the “arbitration defense,” and that not raising arbitration in the answer had no impact on the company’s ability to challenge Civil Rule 23 issues at class certification.

The Background

In October 2012, Edward Gembarski brought a class action against his prior employer, PartsSource, claiming breach of contract, unjust enrichment, conversion, equitable restitution, constructive trust and “money had and received.” PartsSource filed an answer denying the class action allegations and that the action could proceed as a class action. Nearly three years later, in September 2015, Gembarski, for the first time, sought class certification.

The trial court referred the case handling to a magistrate. PartsSource opposed the motion to certify, arguing, among other things, that Gembarski could not meet the typicality or adequacy requirements for certification because those putative class members who signed arbitration agreements could not be part of the class. In response, Gembarski maintained that PartsSource knew of its claimed right to arbitrate at the beginning of the action yet failed to assert any “arbitration defense.”

Ultimately, both the Portage County Court of Common Pleas and the Eleventh District Court of Appeals found for Gembarski. The appellate court concluded that PartsSource “was aware of its right to assert the arbitration defense from the inception of the underlying class action.” 2017-Ohio-8940, 101 N.E. 3d 469, ¶ 66. The appellate court also concluded that PartsSource’s “failure to assert the arbitration defense in its answer, or a supplement thereto, or seek to enforce the right to arbitration at some point prior to its opposition to the certification was fundamentally inconsistent with its right to assert the defense.”

And, according to the court, the magistrate’s conclusion that PartsSource waived its arbitration defense to the Rule 23 typicality and adequacy requirements was not unreasonable. Consequently, the appellate court concluded that the Rule 23(A) typicality and adequacy requirements were met.

Ohio Supreme Court Analysis

Justice Patrick F. Fischer, writing for the court, reversed. He found that the case presented “one overarching question”:

[I]n a class-action proceeding, at what point does a defendant waive the argument that the named class member does not satisfy the typicality or adequacy requirements under Civ. R. 23(A) when that named class member is not subject to an arbitration agreement that was entered into by most unnamed putative class members? ¶ 18.

The ultimate answer to that consequential question was notuntil the class certification stage. In reaching its conclusion, the state Supreme Court determined that the lower courts improperly “merged” the analysis of arbitration as a response to an action and arbitration as an “attack” on the plaintiff’s compliance with Rule 23(A). ¶¶ 21, 22.

The state Supreme Court first examined if PartsSource was required to raise arbitration in its answer pursuant to Civil Rule 8(B). It found that there was no dispute that the parties had no right to arbitrate because there was no arbitration agreement between them. Hence, PartsSource had no obligation to raise a defense that did not even apply to Gembarski. The operative question was whether PartsSource had to state in its answer a defense to unnamed putative class members who had arbitration agreements. The court also answered that question in the negative, finding that “[u]nnamed putative class members are not parties to the action prior to certification; thus, PartsSource did not need to raise defenses that would be applicable against only those unnamed putative class members who were merely potential future parties.” ¶ 28. (Emphasis in original.)

Next, the court examined the related question of whether PartsSource had an obligation to specifically raise its arbitration-related Rule 23 objections to class certification other than as a denial in its answer. Again, the court found PartsSource “had no duty beyond denying the averments in Gembarski’s complaint to raise the Civ. R. 23(A) argument.” PartsSource’s denial was sufficient to make Gembarski aware of PartsSource’s position on class certification.

Nor was PartsSource required to move to strike the class allegations to retain its Rule 23 arguments at class certification time. Neither Civil Rule 12 nor Rule 23 requires such a motion. And Gembarski, not PartsSource, had the obligation to meet the class certification requirements.

Finally, the Supreme Court of Ohio found PartsSource raised its Rule 23 argument at precisely the right time – class certification. Gembarski could demonstrate no typicality or adequacy because he was not covered by the arbitration agreement to which most putative class members were parties. Thus, the case was remanded to the appellate court to consider PartsSource’s assignments of error based on the opinion.

BakerHostetler filed an amicus curiae brief and argued on behalf of the Ohio Management Lawyers Association for PartsSource in Gembarski.

Next Steps

The law continues to develop at the intersection of arbitration and class actions. Recently, the Eleventh Circuit issued an opinion declaring that prior to class certification, “any plaintiffs beyond those named in the complaint are speculative and beyond the reach of the Court’s power” with respect to enforcement or nonenforcement of arbitration agreements. We blogged that decision here.

But notwithstanding these beneficial developments in waiver and class action law, employers must be vigilant and raise the existence of arbitration agreements at their earliest opportunity. Listing arbitration among other separately stated defenses in the answer is usually not a hardship, and certainly puts plaintiffs and the courts on notice of potential future issues. In the class or aggregate litigation context, potential defenses should be investigated and identified as soon as possible.

BOTTOM LINE

A defendant does not waive the right to raise arbitration by not addressing it in the answer to a single plaintiff’s complaint when that plaintiff is not covered by an agreement and when only unnamed putative class members are covered.

We’ve commented many times before that relatively few collective actions survive the “second stage” motion to decertify or, relatedly, an unofficial “third stage” when the trial court actually considers how the matter will be managed at trial. Here is another variation on that theme – an unusual case involving a lender’s claimed involvement in the failure to pay wages.

The case of Garcia v. Peterson, Civil Action H-17-1601 (S.D. Tex., August 5, 2019), arose out of the wind-down of Graebel Van Lines, which once billed itself as the largest privately owned moving company in the United States. The company operated through its own employees, through affiliates and by independent contractor arrangements. According to the 31 plaintiffs, all of whom worked as independent contractors for Graebel affiliates, they received limited payment or no payment at all for the services they performed during the last three to four months of the company’s operation. They settled their claims against both Graebel and its affiliates, but continued the litigation against one of its secured lenders, contending that controlled Graebel’s operations during its final months and should be liable to them.

The plaintiffs thus had the difficult task of asserting that they were actually employees of Graebel Van Lines and that the lender was responsible for Graebel’s failure to pay the amounts due.

The district court conditionally certified an FLSA collective action, and approximately 125 individuals opted in, in addition to the 31 named plaintiffs. After the other parties had settled, the lender moved to decertify.

The district court found numerous problems with the case continuing as a collective. First, the parties had significant disputes over what pay policy was in effect at what time, what the payments represented and what was actually paid. Second, the court analyzed the relationship between the drivers and the trucking company under various tests, such as economic realities, company procedures, the ability to turn down other work, profitability and skill. The court found that while the various factors pointed in different directions, on balance they demonstrated that the various drivers were not similarly situated as to the issue of whether they were independent contractors or employees. Ultimately, the court found that the need to make individual inquiries rendered collective treatment procedurally difficult at best and likely unfair at worst. Due to the dissimilarities among the class members, the court decertified the collective class and dismissed the opt-ins’ claims without prejudice. The court apparently found no need to go over the additional hurdle the plaintiffs faced in holding the lender liable for Graebel’s alleged failure to pay.

While the court reached the right conclusion, one can reasonably question why conditional certification was granted in the first place. While there may have been a failure to pay, the ultimate problems with the class, particularly as to independent contractor status, should have been apparent from the outset. Further exploration of that point earlier in the case might have saved the court and the parties considerable cost and expense.

The bottom line: Conditional certification isn’t the end, and problems with a collective action are likely to grow over time, leading to decertification.

]]>https://www.employmentclassactionreport.com/flsa/district-court-decertifies-flsa-collective-action-with-independent-contractor-issues/feed/0Ninth Circuit Undermines Use of Time Studies in Disposing of Wage and Hour Claims in Californiahttps://www.employmentclassactionreport.com/off-the-clock-2/ninth-circuit-undermines-use-of-time-studies-in-disposing-of-wage-and-hour-claims-in-california/
https://www.employmentclassactionreport.com/off-the-clock-2/ninth-circuit-undermines-use-of-time-studies-in-disposing-of-wage-and-hour-claims-in-california/#respondThu, 08 Aug 2019 17:56:18 +0000https://www.employmentclassactionreport.com/?p=5691Continue Reading]]>Two years ago, we blogged a pair of cases with similar fact patterns and outcomes involving the successful use of time studies (See our October 13, 2017 and October 16, 2017 blog posts). In both cases, shoe retailers required employees to undergo brief security checks before leaving the store. The employees in both cases brought Rule 23 class claims under California law to recover wages and the usual list of California damages arising from the time spent in those checks. In both cases, the district court relied on time studies that the time spent was minimal, and thus granted summary judgment for the employer under the de minimis doctrine.

One of those two cases, Rodriguez v. Nike Retail Services, Inc., Case No. 17-16866 (9th Cir., June 28, 2019), has now been reversed. Relying on the intervening California Supreme Court authority in Troester v. Starbucks Corp., 421 P.3d 1114 (Cal. 2018), the court found that the district court had improperly applied the federal de minimis doctrine to the plaintiffs’ claims. Although the state Supreme Court in Troester had rejected the federal 10-minute standard, it had left open the door to the question of whether California would apply the doctrine to a shorter span of time. The Ninth Circuit concluded, however, that the application of a shorter period was unlikely, and found that there probably was no de minimis defense available under California law.

So does that mean time studies are worthless? Nope. First, the Rodriguez case was decided under California law. Nothing in the opinion suggests that a time study could not be used effectively under existing FLSA case law. Such a study can still be used to demonstrate that the time spent in uncompensated activities was, indeed, de minimis and would not give rise to a claim under federal law. Hence, proper time studies can still be dispositive under the FLSA and the laws of most states.

Second, the studies did show that the time spent in the security checks was minimal, and thus would have lessened the amount of time (and pay) the plaintiffs were claiming. Such a reduction would also be valuable in a claim under the FLSA and its state law counterparts in several respects. It would, of course, reduce the available recovery. In many cases, it might also reduce the claim to zero, particularly in “gap time” situations in which the employees continue to earn above the minimum wage but have not worked in excess of 40 hours per week.

The bottom line: Despite recent unfavorable Ninth Circuit authority under California law, time studies can be a useful tool to limit or dispose of wage and hour claims.

Instead, the Court followed the lead of several of its sister circuits – the Fourth, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits. We previously blogged a number of those decisions dealing with “gateway issues” and arbitration (See our October 25, 2018 blog that also referenced our prior articles on the subject).

One might question why this issue deserves a blog, but it is indeed one of note because of the view of the arbitrator, one that unfortunately is not alone. In this case, the arbitration agreement used straightforward language allowing the arbitrator to “hear only individual claims” and generally forbidding class or collective arbitration. Undeterred, the arbitrator permitted class arbitration on the theory that the class action prohibition was invalid under federal law.

The Proceedings Below

The Crawford case, which was consolidated with 20/20 Commc’ns v. Blevins, No. 19-10050, for appeal purposes, involved claims by several field sales managers who had signed mutual arbitration agreements with the sales and marketing company. Initially, the field sales managers filed separate individual arbitration claims but later amended them to proceed as a class. In response, 20/20 Communications asked the district court to rule that class arbitrability is a gateway issue for the court, not an arbitrator, and that the class action waiver did bar class arbitrations. See 20/20 Commc’ns, Inc. v. Blevins, No. 4:16-cv-00810-Y (N.D. Tex.).

While the Blevins case was pending, some employees sought clause construction awards arguing that the class arbitration bar in the agreement violated the National Labor Relations Act (NLRA). One arbitrator agreed. In response, 20/20 filed a district court action seeking to vacate the clause construction award. Instead, the district court confirmed the award and the Crawford appeal resulted. While Crawford was pending, the district court in Blevins held the arbitration agreement empowered the arbitrator to decide class arbitrability, and that ruling was also appealed by 20/20 and consolidated with the first case.

After agreeing with the other circuits that had decided the question, the Fifth Circuit went through a detailed analysis of why courts generally should decide the issue.

“Like our sister circuits, we regard the decision to arbitrate a dispute as a class, rather than on an individual basis, as a threshold question of arbitrability, because class arbitrations differ from individual arbitrations in fundamental ways.” Slip Op. at 5.

According to the panel, the difference was more than form but had concrete consequences as well. Class actions not only increase the size and complexity of the proceeding but “raise important due process concerns.” Citing AT&T Mobility v. Concepcion, 563 U.S. 333, 348-49 (2011), the panel acknowledged that class actions can bind unnamed parties who must be accorded due process, including notice, ability to be heard and to opt out of the class. Finally, the appellate court also found one of the benefits of arbitration “threatened” in class proceedings – “the protection of the privacy and confidentiality of the parties.” Consequently, the panel had little problem agreeing that the availability of class arbitration was “a foundational question of arbitrability,” citing Herrington v. Waterstone Mortg. Corp., 907 F. 3d 502, 507 (7th Cir. 2018).

Once the panel determined that class arbitrability was a gateway issue, it easily determined if the arbitration agreement “clearly and unmistakably agreed” to permit the arbitrator to determine the issue. It did not:

“[T]he parties agree that this Agreement prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law. This means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding, to the maximum extent permitted by law.” (Emphasis added.) Slip. Op. at 6.

The panel could not conceive of why the parties would prohibit class arbitration but then permit an arbitrator to decide the issue. “Having closed the door to class arbitrations to the fullest extent possible, why would the parties then re-open the door to the possibility of class arbitrations, by announcing specific procedures to govern how such determinations shall be made?” Slip Op. at 7.

The panel found that none of the provisions cited by the employees overcame the rules of contract construction or the class arbitration bar, and authorized arbitrators, not courts, to make the decision.

So, another appellate court has followed its sisters, finding that class arbitration is a “gateway” issue that must be decided by the courts – unless clear and unmistakable language provided otherwise.

BOTTOM LINE:

The Fifth Circuit has joined six other circuits in holding that the availability of class or collective arbitration is a threshold question of arbitrability to be decided by the courts absent clear and unmistakable language to the contrary.

One of the most fundamental, but often overlooked, defenses in ERISA litigation is that the plaintiff did not allege a violation of an actual ERISA plan. An at-issue document/provision cannot be an ERISA pension plan unless it provides retirement income or “deferral of income beyond covered employment.” Designated employee retirement plans and 401(k) plans will easily meet this definition. However, as the recent decision in Scanlan v. American Airlines Group, Inc., 18-4040 (6/18/2019) demonstrates, employers’ bonus and incentive plans do not automatically fall within this definition merely by allowing participating employees to apply the provided compensation toward their retirement.

The plaintiff in Scanlan brought the case as a putative class action under the Uniformed Services Employment and Reemployment Rights Act (USERRA), alleging American Airlines Group (AAG) did not treat military leave as favorably as other types of leave for pay and benefit purposes. AAG moved to dismiss. The court denied AAG’s motion to dismiss in part, but granted it as to the plaintiff’s claim that AAG’s calculation of awards under its Profit-Sharing Plan (the Plan) violated § 4318(b)(1). Claims under § 4318(b)(1) require the existence of an ERISA pension plan. The plaintiff alleged that the Plan met ERISA’s definition of an employee pension plan because it permitted employees to designate part or all of their award under the Plan toward their retirement account.

The court disagreed. If found that the phrase “provides retirement income” refers only to plans created for the purpose of paying retirement income. Clearly, the Plan was not designed for such a purpose, even though it allowed contributions to go toward retirement. The court also found that the Plan was not an ERISA-covered deferred compensation plan and pointed to the Plan’s express intent to fall within ERISA’s coverage exemption for bonus plans (29 C.F.R. § 2510.302(c)). The court noted that while this expressed intent was not dispositive, it was relevant. Moreover, there was no allegation in the Complaint that the Plan systematically deferred payments to the termination of employment or to provide retirement income, which would have taken it within ERISA’s definition of a pension plan. Therefore, the court dismissed this count of the complaint.

The Bottom LineThe mere fact that employees may allocate some or all of their bonus or profit sharing awards toward their retirement does not necessarily mean that ERISA covers the plan.

]]>https://www.employmentclassactionreport.com/erisa/employers-profit-sharing-plan-is-not-covered-by-erisa-pennsylvania-federal-court-finds/feed/0NY Law Doesn’t Prevent Arbitration of Sexual Harassment Claimshttps://www.employmentclassactionreport.com/arbitration/ny-law-doesnt-prevent-arbitration-of-sexual-harassment-claims/
https://www.employmentclassactionreport.com/arbitration/ny-law-doesnt-prevent-arbitration-of-sexual-harassment-claims/#respondMon, 01 Jul 2019 18:00:42 +0000https://www.employmentclassactionreport.com/?p=5671Continue Reading]]>Recent New York legislation in reaction to the #MeToo movement has sought to limit or foreclose arbitration of employment-related disputes. See N.Y. C.P.L.R. § 7515 (“§ 7515”) and its June 19, 2019, amendment, bill S6577/A842. The bill, initially signed into law in April 2018, was to “deal[] with the scourge of sexual harassment.” See N.Y. State Senate, Stenographic Rec., 241st Leg., Reg. Sess., at 1855 (Mar. 20, 2018). But some believed that the Federal Arbitration Act (FAA) would likely preempt the legislation, especially when § 7515(b) expressly provided “[e]xcept where inconsistent with federal law.”

Latif was brought by a former Morgan Stanley & Co. employee, who is Muslim and gay, against the company and seven individual employees, claiming a variety of work-related violations, including sexual harassment. Mr. Latif was covered by Morgan Stanley’s CARE Arbitration Program Agreement.

The parties did not contest the enforceability of the arbitration agreement, except as to Latif’s sexual harassment claims. Indeed, they stipulated to that fact on March 21, 2019. After an amended complaint was filed, defendants brought a motion to compel arbitration and stay the proceedings.

The Court’s Legal Analysis

The sole dispute between the parties was whether Latif’s sex harassment claims were excluded from arbitration by the recently enacted § 7515. And the parties agreed that the issue was for the court to decide.

Based on Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), and AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011), the district court decided a party “seeking to avoid arbitration generally bears the burden of showing the agreement to be inapplicable or invalid,” citing Harrington v. Atl. Sounding Co., 602 F. 3d 113, 124 (2d Cir. 2010). Moreover, the “savings clause” of the FAA, Section 2, only covers defenses that apply to “any contract,” not those defenses that “target arbitration either by name or by more subtle methods.” Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1622 (2018). Following Concepcion, the court confirmed that “when state law prohibits the arbitration of a particular type of claim . . . [t]he conflicting rule is displaced by the FAA.” See 563 U.S. at 341.

With that analytical framework, the court reviewed § 7515, which became effective on July 11, 2018, and specifically prohibited clauses requiring arbitration “to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment.” See N.Y. C.P.L.R. § 7515(a)(2). Given that language, use of § 7515 to nullify the parties’ arbitration agreement would conflict with the FAA. And, the FAA’s savings clause had no impact, because the new law was not a ground in law or equity “for the revocation of any contract.” See 9 U.S.C. § 2. Interestingly, the district court noted in footnote 2 that on June 19 the New York legislature passed a bill that prohibited mandatory arbitration of any discrimination claim. But this new amendment didn’t provide a defense to the arbitration, or change the outcome of the case.

Plainly, § 7515 was initially focused on sexual harassment claims, but its application in a multifaceted claim case would be more difficult. Some claims could be arbitrated and some tried to a jury. Here, Latif brought claims for discrimination, retaliation, assault and battery, and infliction of emotional distress. The parties’ March 21, 2019, stipulation provision provided:

Plaintiff agrees that the Arbitration Agreement would be enforceable . . . except that Plaintiff contends that the Arbitration Agreement has been declared null and void or unenforceable as to his claims of sexual harassment by NY CPLR § 7515, as of July 11, 2018. Plaintiff does not otherwise challenge the enforceability of the Arbitration Agreement.

If the claims went forward in both venues, would collateral estoppel or issue preclusion, based on the first claim resolved, impact the others? A potentially complex and expensive dispute resolution procedure. Perhaps that’s why the law was amended in June 2019 to exclude arbitration of all discrimination claims. But as the district court noted, that change would not save the new law from FAA preemption.

BOTTOM LINE

The Latif case illustrates that state laws targeting enforcement of arbitration agreements cannot escape FAA preemption regardless of whether they only seek to exclude certain types of claims – such as those for sexual harassment.